Spain Joins Exclusive ‘Linkers’ Club

ByEmese Bartha

Market watchers are bullish on Spain’s prospects for inflation-linked issue.

Agence France-Presse/Getty Images

The last time Spain tried to launch its debut inflation-linked bond, in 2010, the plans were scuppered by the euro crisis.

This time around, it appears to face no hurdles. The country’s Treasury has hired five banks to get the deal done this week, with the issue of at least €500 million ($688 million) in a 10-year so-called linker whose coupons will bob up and down in line with Europe’s harmonized consumer price index.

The deal is a win-win situation for investors and the Spanish Treasury. Investors get entry into a new Spanish asset class, while the Treasury will be able to diversify its funding base.

It’s also a sort of prestige issue. Spain–the euro zone’s fourth largest economy—will join the club with regular linker issuers Germany, France and Italy. Smaller euro-zone countries are unlikely to follow suit, as linkers don’t normally exceed 10% of a country’s annual government bond issuance.

One potential banana skin: with inflation rates at near four-year lows, the returns on this bond could be super-skinny, deterring some potential investors. But market watchers still think it will be snapped up. “Even deflation fears won’t derail the issuance, given the modest initial issue size,” said Jan von Gerich, chief strategist at Nordea.

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